We show that dividend-growth predictability by the dividend yield is the rule rather than the exception in global equity markets. Dividend predictability is weaker, however, in large and developed markets where dividends are smoothed more, the typical firm is large, and volatility is lower. Our findings suggest that the apparent lack of dividend predictability in the United States does not uniformly extend to other countries. Rather, cross-country patterns in dividend predictability are driven by differences in firm characteristics and the extent to which dividends are smoothed.
{"title":"Dividend Predictability Around the World","authors":"Jesper Rangvid, Maik Schmeling, A. Schrimpf","doi":"10.2139/ssrn.1542592","DOIUrl":"https://doi.org/10.2139/ssrn.1542592","url":null,"abstract":"We show that dividend-growth predictability by the dividend yield is the rule rather than the exception in global equity markets. Dividend predictability is weaker, however, in large and developed markets where dividends are smoothed more, the typical firm is large, and volatility is lower. Our findings suggest that the apparent lack of dividend predictability in the United States does not uniformly extend to other countries. Rather, cross-country patterns in dividend predictability are driven by differences in firm characteristics and the extent to which dividends are smoothed.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-10-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83084164","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Although many studies on the directional accuracy of forecasts by international organizations and professional forecasters have been scrutinized, little attention has been paid to forecasts by business leaders. In order to address this gap, we use directional tests to investigate whether forecasts of Gross Domestic Product by corporate executives are valuable to their users. Our findings indicate that all the forecasts with forecast horizons from 1 to 14 months are valuable, whereas established literature indicates that longer-term forecasts tend not to be valuable. This suggests that corporate executives are concerned with and focus on longer-term economic environments and can therefore serve as an important resource for policymakers. However, some of the useful forecasts with real-time data, in particular those in the Tankan survey, are not useful with historical data.
{"title":"Do Corporate Executives Have Accurate Predictions for the Economy? A Directional Analysis","authors":"Y. Tsuchiya","doi":"10.2139/ssrn.1766285","DOIUrl":"https://doi.org/10.2139/ssrn.1766285","url":null,"abstract":"Although many studies on the directional accuracy of forecasts by international organizations and professional forecasters have been scrutinized, little attention has been paid to forecasts by business leaders. In order to address this gap, we use directional tests to investigate whether forecasts of Gross Domestic Product by corporate executives are valuable to their users. Our findings indicate that all the forecasts with forecast horizons from 1 to 14 months are valuable, whereas established literature indicates that longer-term forecasts tend not to be valuable. This suggests that corporate executives are concerned with and focus on longer-term economic environments and can therefore serve as an important resource for policymakers. However, some of the useful forecasts with real-time data, in particular those in the Tankan survey, are not useful with historical data.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"141 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82098930","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In convertible bond market, it is very common to protect the conversion privilege from being called away too soon by using soft-call constraint, or to protect the bond being converted too soon by using provision convert constraint. The first option will protect the bond holder; the second will be benefit to bond issuer. Both constrains have the common feature that the option can be exercise only when the underlying stock closes above a pre-set barrier for any n or more days over m consecutive trading days up to the exercise day. This feature brings challenge for pricing. This paper will propose an approximation solution by Looking Backward (LB) method. In order to illustrate the idea more clearly, I will focus on the Black model stock dynamic using binomial tree based on Cox-Ross-Rubinstein scheme. The results are compared with the exactly solution given by the author in [1]. The extension to other numerical method such as PDE with more general stock dynamic will also be discussed, and the numerical scheme will be laid out. The idea of the method can be applied to the pricing of other path dependent instruments in general.
{"title":"Back to the Future: An Approximate Solution for N Out of M Soft-Call Option","authors":"Joshua Xingzhi Zhang","doi":"10.2139/ssrn.1815295","DOIUrl":"https://doi.org/10.2139/ssrn.1815295","url":null,"abstract":"In convertible bond market, it is very common to protect the conversion privilege from being called away too soon by using soft-call constraint, or to protect the bond being converted too soon by using provision convert constraint. The first option will protect the bond holder; the second will be benefit to bond issuer. Both constrains have the common feature that the option can be exercise only when the underlying stock closes above a pre-set barrier for any n or more days over m consecutive trading days up to the exercise day. This feature brings challenge for pricing. This paper will propose an approximation solution by Looking Backward (LB) method. In order to illustrate the idea more clearly, I will focus on the Black model stock dynamic using binomial tree based on Cox-Ross-Rubinstein scheme. The results are compared with the exactly solution given by the author in [1]. The extension to other numerical method such as PDE with more general stock dynamic will also be discussed, and the numerical scheme will be laid out. The idea of the method can be applied to the pricing of other path dependent instruments in general.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"37 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77871357","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2012-08-01DOI: 10.1108/S0731-9053(2012)0000029007
John C. Chao, J. Hausman, Whitney Newey, Norman R. Swanson, Tiemen Woutersen
This paper shows how a weighted average of a forward and reverse Jackknife IV estimator (JIVE) yields estimators that are robust against heteroscedasticity and many instruments. These estimators, called HFUL (Heteroscedasticity robust Fuller) and HLIM (Heteroskedasticity robust limited information maximum likelihood (LIML)) were introduced by Hausman et al. (2012), but without derivation. Combining consistent estimators is a theme that is associated with Jerry Hausman and, therefore, we present this derivation in this volume. Additionally, and in order to further understand and interpret HFUL and HLIM in the context of jackknife type variance ratio estimators, we show that a new variant of HLIM, under specific grouped data settings with dummy instruments, simplifies to the Bekker and van der Ploeg (2005) MM (method of moments) estimator.
本文展示了正向和反向Jackknife IV估计器(JIVE)的加权平均如何产生对异方差和许多工具具有鲁棒性的估计器。这些被称为HFUL(异方差鲁棒富勒)和HLIM(异方差鲁棒有限信息最大似然(LIML))的估计量是由Hausman等人(2012)引入的，但没有推导。组合一致估计量是与Jerry Hausman有关的主题，因此，我们在本卷中提出了这个推导。此外，为了进一步理解和解释在折刀型方差比估计器背景下的HFUL和HLIM，我们展示了HLIM的一个新变体，在特定的分组数据设置下，使用虚拟仪器，简化为Bekker和van der Ploeg (2005) MM(矩量法)估计器。
{"title":"Combining Two Consistent Estimators","authors":"John C. Chao, J. Hausman, Whitney Newey, Norman R. Swanson, Tiemen Woutersen","doi":"10.1108/S0731-9053(2012)0000029007","DOIUrl":"https://doi.org/10.1108/S0731-9053(2012)0000029007","url":null,"abstract":"This paper shows how a weighted average of a forward and reverse Jackknife IV estimator (JIVE) yields estimators that are robust against heteroscedasticity and many instruments. These estimators, called HFUL (Heteroscedasticity robust Fuller) and HLIM (Heteroskedasticity robust limited information maximum likelihood (LIML)) were introduced by Hausman et al. (2012), but without derivation. Combining consistent estimators is a theme that is associated with Jerry Hausman and, therefore, we present this derivation in this volume. Additionally, and in order to further understand and interpret HFUL and HLIM in the context of jackknife type variance ratio estimators, we show that a new variant of HLIM, under specific grouped data settings with dummy instruments, simplifies to the Bekker and van der Ploeg (2005) MM (method of moments) estimator.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"49 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72692424","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We are the first to investigate the cross-section of stock returns in the new emerging equity markets, the so-called frontier emerging markets. Our unique survivorship-bias free data set consists of more than 1,400 stocks over the period 1997 to 2008 and covers 24 of the most liquid frontier emerging markets. The major benefit of using individual stock characteristics is that it allows us to investigate whether return factors that have been documented in developed countries also exist in these markets. We document the presence of economically and statistically significant value and momentum effects, and a local size effect. Our results indicate that the value and momentum effects still exist when incorporating conservative assumptions of transaction costs. Additionally, we show that value, momentum, and local size returns in frontier markets cannot be explained by global risk factors.
{"title":"The Cross-Section of Stock Returns in Frontier Emerging Markets","authors":"Wilma de Groot, J. Pang, L. Swinkels","doi":"10.2139/ssrn.1600023","DOIUrl":"https://doi.org/10.2139/ssrn.1600023","url":null,"abstract":"We are the first to investigate the cross-section of stock returns in the new emerging equity markets, the so-called frontier emerging markets. Our unique survivorship-bias free data set consists of more than 1,400 stocks over the period 1997 to 2008 and covers 24 of the most liquid frontier emerging markets. The major benefit of using individual stock characteristics is that it allows us to investigate whether return factors that have been documented in developed countries also exist in these markets. We document the presence of economically and statistically significant value and momentum effects, and a local size effect. Our results indicate that the value and momentum effects still exist when incorporating conservative assumptions of transaction costs. Additionally, we show that value, momentum, and local size returns in frontier markets cannot be explained by global risk factors.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"27 21 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86148794","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using market microstructure data, we study the determinants of the buying/selling pattern around seasoned equity offerings (SEOs) and their effect on underpricing. We find that the trading pattern around SEOs is slightly positive before the issue date and heavily negative after the SEO, and this pattern is distinctly different from what has been inferred from stock returns. The large negative order imbalances mostly occurred during the late 90s in NASDAQ market, where 86% of underwriters are also market makers and market depth is shallow. The abnormal order imbalances appear to be the result of underwriter market making activities. We also find that SEO underpricing is correlated with the post-issue-date negative order imbalances. The selling pressure on stock returns is estimated as 20% of SEO underpricing, indicating a significant portion of SEO underpricing is related to market making risk.
{"title":"Order Imbalances Around Seasoned Equity Offerings","authors":"Sukwon Thomas Kim, Ronald W. Masulis","doi":"10.2139/SSRN.1932401","DOIUrl":"https://doi.org/10.2139/SSRN.1932401","url":null,"abstract":"Using market microstructure data, we study the determinants of the buying/selling pattern around seasoned equity offerings (SEOs) and their effect on underpricing. We find that the trading pattern around SEOs is slightly positive before the issue date and heavily negative after the SEO, and this pattern is distinctly different from what has been inferred from stock returns. The large negative order imbalances mostly occurred during the late 90s in NASDAQ market, where 86% of underwriters are also market makers and market depth is shallow. The abnormal order imbalances appear to be the result of underwriter market making activities. We also find that SEO underpricing is correlated with the post-issue-date negative order imbalances. The selling pressure on stock returns is estimated as 20% of SEO underpricing, indicating a significant portion of SEO underpricing is related to market making risk.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"67 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83123278","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we analyze the determinants of US monetary policy stance as expressed in speeches by Federal Reserve (Fed) officials over the period January 1998–September 2009. Econometrically, we use a probit model with regional and national macroeconomic variables to explain the content of these speeches. Our results are, first, that a rise in the inflation rate or the Leading Index makes a hawkish speech more likely. Second, when Fed presidents make a speech in their home district, its content is influenced by both regional and national macroeconomic variables, whereas speeches given outside the home district are influenced solely by national information. Third, the influence of regional variables increases during (i) Ben Bernanke’s tenure as Fed Chairman, (ii) recessions, and (iii) the financial crisis. Finally, speeches by nonvoting presidents reflect regional economic development to a greater extent than those by voting presidents.
{"title":"Do Federal Reserve Presidents Communicate with a Regional Bias?","authors":"B. Hayo, Matthias Neuenkirch","doi":"10.2139/ssrn.1759923","DOIUrl":"https://doi.org/10.2139/ssrn.1759923","url":null,"abstract":"In this paper, we analyze the determinants of US monetary policy stance as expressed in speeches by Federal Reserve (Fed) officials over the period January 1998–September 2009. Econometrically, we use a probit model with regional and national macroeconomic variables to explain the content of these speeches. Our results are, first, that a rise in the inflation rate or the Leading Index makes a hawkish speech more likely. Second, when Fed presidents make a speech in their home district, its content is influenced by both regional and national macroeconomic variables, whereas speeches given outside the home district are influenced solely by national information. Third, the influence of regional variables increases during (i) Ben Bernanke’s tenure as Fed Chairman, (ii) recessions, and (iii) the financial crisis. Finally, speeches by nonvoting presidents reflect regional economic development to a greater extent than those by voting presidents.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"12 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-07-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82104467","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We explore the effect of interest rates on risk taking and find that it depends on the type of risk involved. In a Bayesian setting, investments can be risky either because payoff-relevant signals are noisy or because the dispersion of the prior is high. While both types of risk contribute symmetrically to the overall riskiness of an investment project, we show that changes in interest rates affect risk taking in these two types of risk in opposite directions. This makes the net effect of interest rates on risk taking—as measured by the average riskiness of financed projects—necessarily ambiguous and dependent on the sources of risk.
{"title":"Cheap Money and Risk Taking: Opacity versus Fundamental Risk","authors":"Burkhard Drees, B. Eckwert, Felix Várdy","doi":"10.2139/ssrn.1704271","DOIUrl":"https://doi.org/10.2139/ssrn.1704271","url":null,"abstract":"We explore the effect of interest rates on risk taking and find that it depends on the type of risk involved. In a Bayesian setting, investments can be risky either because payoff-relevant signals are noisy or because the dispersion of the prior is high. While both types of risk contribute symmetrically to the overall riskiness of an investment project, we show that changes in interest rates affect risk taking in these two types of risk in opposite directions. This makes the net effect of interest rates on risk taking—as measured by the average riskiness of financed projects—necessarily ambiguous and dependent on the sources of risk.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"9 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86702522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I provide evidence that investors overweight analyst forecasts by demonstrating that prices do not fully reflect predictable components of analyst errors, which conflicts with conclusions in prior research. I highlight estimation bias in traditional approaches and develop a new approach that reduces this bias. I estimate characteristic forecasts that map current firm characteristics into forecasts of future earnings. Contrasting characteristic and analyst forecasts predicts analyst forecast errors and revisions. I find abnormal returns to strategies that sort firms by predicted forecast errors, consistent with investors overweighting analyst forecasts and predictable biases in analyst forecasts influencing the information content of prices.
{"title":"A New Approach to Predicting Analyst Forecast Errors: Do Investors Overweight Analyst Forecasts?","authors":"Eric C. So","doi":"10.2139/ssrn.1714657","DOIUrl":"https://doi.org/10.2139/ssrn.1714657","url":null,"abstract":"I provide evidence that investors overweight analyst forecasts by demonstrating that prices do not fully reflect predictable components of analyst errors, which conflicts with conclusions in prior research. I highlight estimation bias in traditional approaches and develop a new approach that reduces this bias. I estimate characteristic forecasts that map current firm characteristics into forecasts of future earnings. Contrasting characteristic and analyst forecasts predicts analyst forecast errors and revisions. I find abnormal returns to strategies that sort firms by predicted forecast errors, consistent with investors overweighting analyst forecasts and predictable biases in analyst forecasts influencing the information content of prices.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"37 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74228394","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we estimate the effect of food prices on food insecurity for SNAP recipients using data from the Current Population Survey (CPS) and the recently published Quarterly Food-At-Home Price Database (QFAHPD). By constructing this sample we can directly measure the relationship between food prices and food insecurity for U.S. households. We form a local food price index based on amounts of food for a household of four as established by the Thrifty Food Plan. We use an econometric model that accounts for the endogeneity of SNAP receipt to food insecurity and for household-level unobservables. We find that, on average, the effect of food prices on the probability of food insecurity is positive and significant: an increase of one standard deviation in the price of our food basket results in increases of 2.4 percentage points in adult food insecurity and 3.7 percentage points in child food insecurity. These marginal effects amount to 8.4 and 15.9 percent increases in prevalence of food insecurity for adults and children, respectively. These findings have important implications for policy in that SNAP benefits might be beneficially indexed to local food prices.
{"title":"Do Food Prices Affect Food Security for SNAP Households? Evidence from the CPS Matched to the Quarterly Food-At-Home Price Database","authors":"Christian A. Gregory, Alisha Coleman-Jensen","doi":"10.2139/ssrn.1850545","DOIUrl":"https://doi.org/10.2139/ssrn.1850545","url":null,"abstract":"In this paper, we estimate the effect of food prices on food insecurity for SNAP recipients using data from the Current Population Survey (CPS) and the recently published Quarterly Food-At-Home Price Database (QFAHPD). By constructing this sample we can directly measure the relationship between food prices and food insecurity for U.S. households. We form a local food price index based on amounts of food for a household of four as established by the Thrifty Food Plan. We use an econometric model that accounts for the endogeneity of SNAP receipt to food insecurity and for household-level unobservables. We find that, on average, the effect of food prices on the probability of food insecurity is positive and significant: an increase of one standard deviation in the price of our food basket results in increases of 2.4 percentage points in adult food insecurity and 3.7 percentage points in child food insecurity. These marginal effects amount to 8.4 and 15.9 percent increases in prevalence of food insecurity for adults and children, respectively. These findings have important implications for policy in that SNAP benefits might be beneficially indexed to local food prices.","PeriodicalId":11485,"journal":{"name":"Econometrics: Applied Econometrics & Modeling eJournal","volume":"574 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77079028","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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